Randy Cray column: A look at the facts of the economy

During the past political season, many things were said about the economy that were misleading or untrue. In this month's column, I will examine the performance of the U.S. economy over the past number of years. It seems that everyone has an opinion on the matter, but what do the data really say about the situation? There are an untold number of variables that one could examine for insight into the economy. However, I will limit myself to the ones that I feel are the most popular and best understood by the public.

The Bureau of Economic Analysis data show that for 13 consecutive quarters, the gross domestic product of the nation expanded. Let's be clear: The GDP had only two good quarters during this entire period when growth approached 4 percent. In third quarter 2012, GDP was estimated to have grown by 2.0 percent. But we should not forget that in first quarter 2009, the economy was in free fall and contracting at an alarming 5.3 percent rate.

One of the most important factors driving the revival of the economy has been consumer spending. This is important because consumer spending accounts for 70 percent of all economic activity. For the past 11 quarters in a row, household spending has been increasing. In third quarter 2012, household spending grew at a 2 percent rate. Although this is a modest rate, the data are indicating that households are once again playing a major role in the economy. Furthermore, the University of Michigan's Consumer Sentiment Index is at its highest level since September 2007. In October 2012, the index was at 82.6, up from the September 2012 number of 78.3, a gain of 5.5 percent.

According to the Bureau of Labor Statistics, employment in the country has expanded for 24 consecutive months. However, the number of jobs added each month to the economy has been tepid at best. For example, in September, only 114,000 jobs were added to the nation's payrolls. In contrast, during the first four months of 2009, the nation was losing an average of 700,000 jobs a month! So by in large, we have been improving over the last three years, but not nearly enough to wipe out the huge losses that occurred in in the Great Recession.

Relatedly, the unemployment rate sky rocketed during 2009 to about 10 percent nationally. It has been trending lower ever since and stands at about 7.8 percent in September. The Bureau of Labor Statistics data show that the unemployment rate remains at the same level as it did at the beginning of 2009. So the economy appears to be recovering on this front.

Improvement in the housing market is also evident in the data on housing prices and foreclosure activity. According to the National Association of Home Builders, the national median home price has risen from $175,000 in 2009 to $185,000 in second quarter 2012, a modest gain of 5.4 percent. At the same time, RealtyTrac data indicate that foreclosure activity reached a peak in fall 2010, when about 100,000 homes were being foreclosed per month. In September, the number of foreclosures had fallen to about 53,000 per month and is actually lower than the 67,000 home foreclosures that took place in January 2009.

Over the past four years, the Federal Reserve has come under intense criticism for its expansive monetary policy called quantitative easing. The concern has been that this prolonged effort to stimulate the economy through easy monetary policy will lead to inflation and threaten the economy. The record shows that over the last year, inflation has remained subdued. In September, the annualized inflation rate was 2.0 percent. However, with so much money now in circulation, it behooves the Federal Reserve to keep a close eye on the situation. If the economy gathers additional momentum, the inflation hawks might yet be proved right in their concerns.

The forecast is that the economy should continue to expand at a modest but steady rate into 2013. However, there are things that could easily derail the expansion and worse yet cause another recession. How Washington addresses the budget impasse is a huge matter. As it now stands, if nothing is done, automatic tax hikes and spending cuts will reduce GDP by 3 to 5 percent and cause a recession.

On the international scene, the recession gripping Europe is far from over and hurts U.S. exports. Lastly, the nuclear situation developing in the Middle East could lead to another major war. If this happens, there will be untold ramifications for the world's oil dependent economy.

Randy Cray, Ph.D., is the chief economist at University of Wisconsin-Stevens Point's Central Wisconsin Economic Research Bureau.

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Randy Cray column: A look at the facts of the economy

During the past political season, many things were said about the economy that were misleading or untrue. In this month's column, I will examine the performance of the U.S. economy over the past

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